Like it or not, robo-advisors are here to stay. And it’s more than just the usual story line about how the Wealthfronts and Betterments of the world are threatening to eat the lunch of traditional financial advisors. Even companies with long-standing relationships with the financial advisory community—Vanguard, Charles Schwab and Fidelity Investments—have entered the robo fray with sophisticated computerized models that build and monitor investor portfolios.
According to Cogent Reports, the syndicated division of Market Strategies International, these three legacy players have an advantage in the race to see which robo providers will ultimately prevail. “Given their history and reputation among investors, they have a leg up,” says Julia Johnston-Ketterer, a senior director at Cogent. “In terms of who’s going to win, it’ll be those companies able to navigate brand differentiation in these offerings. It’ll also be about what the product mix is, and does it ultimately meet investor needs.”
Vanguard Personal Advisor Services (a hybrid offering combining both human and automated elements) and Schwab Intelligent Portfolios (closer to a fully automated program) have attracted significant assets. Some people see these two offerings as just as much a direct threat to traditional advisors as the emerging brands.
Fidelity had an arrangement with Betterment Institutional where Fidelity’s advisor clients who wanted a digital offering could tap into Betterment’s robo platform. But that relationship ended last year, and instead Fidelity is building its own automated portfolio management service aimed at retail investors called Fidelity Go, which currently is in pilot testing and is expected to formally launch sometime this year.
Despite the growth of automated programs, Cogent says robo platforms don’t have to be the bogeyman for financial advisors; rather, they can be a helpful tool to grow their practice.
“We’re seeing some of these new offerings from asset managers, such as [BlackRock’s] FutureAdvisor and Invesco’s Jemstep, offer smaller FA firms the opportunity to provide digital investment advice solutions to their clients while helping them further scale their business for some of their smaller clients that they might not have much time to provide a lot of personalized advice to,” says Meredith Lloyd Rice, a Cogent vice president. “These types of solutions seemed to be more geared toward the needs of advisors as a way to serve their clients.”
Asset management giant BlackRock acquired robo-advisor FutureAdvisor last August, with the aim to provide financial advisors and other intermediaries with a digital platform to serve mass affluent investors and millennials. In January, asset manager Invesco bought Jemstep, a robo platform that has been popular with advisors.
Those deals are part of a growing trend of large asset managers and other financial services firms buying smaller technology platforms, which some observers—and financial advisors—fear could skew formerly product-agnostic platforms toward favoring products of the new parent company. Indeed, Jemstep co-founder Simon Roy made a point at TD Ameritrade’s national conference in February to quell those fears by saying Jemstep would be managed as an independent subsidiary and would continue as an open investment platform.
Regardless, robo technology is clearly the next wave in the advisory industry’s development. “Robos don’t appear to be going away, so I think you’d be best served to embrace it,” Rice says. “I think there is an opportunity to have, like we’ve seen with managed accounts, the evolution of the ability to further scale an advisor’s business for smaller, mass-affluent clients.”
Perhaps, but according to a recent report from the consulting firm Practical Perspectives, most financial advisors are not adopting robo-advice platforms and have little intention of doing so in the near future.